Obama Wants 70% of GM: Bondholders Reject Debt For Equity Deal

Profiles in courage, especially after Obama's use of hate speech against the Chrysler's bondholders and the reports of death threats against them. It has been described as a make or break week for the industry and one can only imagine the pressure Obama and associates will put on these bondholders.

DETROIT/NEW YORK (Reuters) - General Motors Corp has failed to persuade enough bondholders to accept a debt-for-equity swap, setting the stage for the largest-ever U.S. industrial bankruptcy within days.

The event marks a critical disappointment for GM, the largest U.S. automaker and once considered the bellwether of U.S. manufacturing. A popular ad for the automaker once stated that "What's good for General Motors, is good for the USA."

"I would say this is a sound rejection of an unsuitable offer," said Pete Hastings, a credit analyst at Morgan Keegan who has followed GM. "I have been saying for some time that this thing was dead on arrival and we were just waiting for the doctor to pronounce it dead. Now that's happened."

The largest U.S. automaker had so far failed to gain anywhere near the 90 percent of bondholder support desired to stave off bankruptcy, two sources familiar with the discussions told Reuters on Tuesday. Bondholders have until midnight to make their final decision on the tender.

As of midday Tuesday, the source said the company had only a "low-single-digit" percentage interest from bondholders.

Of course Obama has his own plans for the company:

DETROIT — The government will hold a large share of General Motors after the company emerges from bankruptcy protection, and will provide G.M. with about $50 billion in financing so that it can reorganize, people with direct knowledge of the situation said Tuesday.The Treasury Department will receive about 70 percent of the new G.M., while the United Automobile Workers union will hold 17.5 percent through its retiree health care fund. The fund also would receive warrants for an additional 2.5 percent of stock in the new G.M., with a price to be determined later, potentially giving it a total of 20 percent.

That is half of the stock that the U.A.W.’s fund, called a Voluntary Employee Beneficiary Association, or VEBA, was expected to receive under plans drafted this spring.The figures were outlined to union leaders in Detroit, who met Tuesday to consider a new agreement between the U.A.W. and G.M.

Bondholders will receive about a 10 percent stake of the new company, and others will receive a smaller percentage, these people said.G.M., which has already received $19.4 billion in financing from Treasury, would get an additional $50 billion or slightly more in debtor-in-possession financing, which it would draw upon during its reorganization.The Treasury plans to create a new version of G.M. with its most attractive assets, like Chevrolet, Cadillac and some of its manufacturing operations. The rest of G.M. would be sold or liquidated.

It looks like bankruptcy might be the only option left.